From buying a new house to cleaning your existing house, you may be doing things this summer that will affect the tax return you file next year.
The higher standard deduction brought about by the Tax Cuts and Jobs Act means fewer taxpayers are itemizing their deductions; however, if you are planning to itemize, you should keep these things in mind:
Deducting state and local income, sales and property taxes. The deduction that taxpayers can claim for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately). Any state and local taxes paid above this amount can’t be deducted.
Acquiring a home equity loan. The deduction for mortgage interest is limited to interest paid on a loan secured by your main home or second home. If you take out a home equity loan, you must use the loan to buy, build, or substantially improve your main home or second home. Interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not. The mortgage interest you may deduct is subject to the limits described in the next paragraph under “buying a home.”
Buying a home. If you buy a new home this year, you can deduct mortgage interest you pay on a total of $750,000 in qualifying debt for a first and second home ($375,000 if married filing separately). For existing mortgages, if the loan originated on or before Dec. 15, 2017, you continue to deduct interest on a total of $1 million in qualifying debt secured by a first and second home.
Charitable contributions. Many people do a good summer clean-out during the warm months, and often find unused items in good condition to donate to a qualified charity. These donations may qualify for a tax deduction. You must itemize deductions to deduct charitable contributions and must have proof of all donations.
Deducting mileage for charity. If you drive a personal vehicle while donating services on a trip sponsored by a qualified charity, your expenses could qualify for a tax break. Itemizers can deduct 14 cents per mile for charitable mileage driven in 2019. Be sure to keep a log of your miles.
Reporting gambling winnings and claiming gambling losses. Taxpayers who itemize can deduct gambling losses up to the amount of gambling winnings. Use the IRS Interactive Tax Assistant to find out more about reporting gambling winnings and losses next year.
For more information see IRS Publication 5307: Tax Reform Basics for Individuals and Families.
Always consult with your accountant or tax professional to verify whether you qualify for any tax deductions.